The GASB has issued two statements that significantly change what records employers must submit in their statement of net assets regarding pension assets and liabilities.

GASB Expands Financial Reporting for Government Pension Plans

9/6/2012

GASB Expands Financial Reporting for Government Pension Plans

by Cheri Amoss

The Governmental Accounting Standards Board (GASB) recently issued two new accounting standards designed to improve accounting and financial reporting for state and local governments. The new standards were designed to increase transparency and comparability among accounting for pension plans, and do not address how a government should go about funding the plans.

Statements No. 67, Financial Reporting for Pension Plans and 68, Accounting and Financial Reporting for Pensions, will replace Statements No. 25, Financial Reporting for Defined Pension Plans and Note Disclosures, No. 27, Accounting for Pensions by State and Local Government Employers, and No. 50, Pension Disclosures.

Statement No. 67 provides guidance to pension plans that are administered through trusts or similar arrangements, increases the amount of information added to financial statements (note disclosures), and requires new required supplementary information (RSI) schedules for both defined benefit and defined contribution pension plans.

Statement No. 68 significantly changes employer reporting of pension assets and liabilities at the entity-wide and enterprise-fund level. Currently, employers are only required to record a pension liability or asset when they do not make the required annual contribution (liability) or make a contribution in excess of the required annual contribution (asset) to the plan. However, the new pension standards will require immediate recognition of the net long-term liability of future pension benefits in excess of accumulated plan assets.

These new standards put a larger financial and organizational burden on state and local government entities, since they will have to coordinate with a range of people to obtain the information they need. They will have to work closely with actuaries and plan administrators, depending on the pension plan, and will have to spend more money to get the additional information needed for their financial records.

Implementation is still a few years away; however, in light of current economic challenges, governments should start reviewing these statements to determine the impact they will have on their organization. They should also coordinate with their actuaries, consultants, auditors, and plan management and cost sharing employers in order to get the information needed to measure, analyze, and implement a plan to address these changes.

Highlights of Statement No. 68 include:

State and local governments that provide a defined benefit pension plan are required to recognize a net pension liability when the total pension liability exceeds the assets of the plan. They must also immediately recognize the pension expense on the government-wide financial statements.

An actuary should provide valuations of the total pension liability at least every two years. If the measurement date is not the same as the valuation date, the employer must update procedures to roll forward amounts from the most recent actuarial valuation.

For cost sharing employers, participating governments must record a liability and expense equal to their proportionate share of the plan’s net pension liability and expense. Each participating government’s proportion and required contributions to the pension plan should be determined using the same basis.

Existing standards related to defined contribution plans are for the most part unchanged.

Employers must submit note disclosures with more detailed information, and new RSI schedules covering the past 10 years.

There are changes to “special funding situations” where a nonemployer government is legally required to make contributions to a pension plan for employees of another government. Nonemployer governments must recognize, in their own financial statements, the proportionate share of the net pension liability and expense of the other government. The government benefiting from the nonemployer’s contribution would recognize in their financial statements only their proportionate share of the net pension liability and expense not assumed under the special funding arrangement. Note disclosures will vary depending on whether the nonemployer government recognizes a substantial, or less than substantial, proportion of the net pension liability.

Concepts related to deferred inflows and outflows as outlined in GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, are utilized in certain circumstances to reflect specific types of changes in actuarial liabilities.

Statement No. 67 is effective for fiscal years beginning after June 15, 2013, and Statement No. 68 is effective for fiscal years beginning after June 15, 2014. These dates have been published, and will not be postponed.

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